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    Erdal Saglam: Primary surplus, not closure case that worsens the economy

    Hürriyet Haber
    08.05.2008 - 12:13 | Son Güncelleme:

    The government wanted it, tried to make it happen, yet the closure case filed against the ruling AKP did not worsen the Turkish economy.

    This outcome was the result of the message that signaled the easing fiscal discipline delivered by the finance and economy ministers that announced a cut in primary surplus this year to 3.5 percent of GDP.

    Ministers from the ruling AKP had previously told that "the correlation between politics and the economy in Turkey had lessened," and that the economy was on a positive track due to the economic policies they implemented. With the filing of the closure case against the ruling AKP, ministers started to counter their previously held opinions and began to hope that politics had a greater impact on the economy. This is why, one by one, they appeared in public giving speeches that would help to drag down the markets and worsen the economic atmosphere. Their goal was to try to create an image that the closure case was having a negative effect on the economy.

    But they were not successful in achieving their aim; however, the economy continued on its course and to be effected not by internal political developments, but by foreign economic developments instead.

    Last week two ministers from the ruling AKP announced that the primary surplus would be cut and expenses for local administrations and financing for the Southeastern Anatolian Project would be increased. Although they say that "this does not mean that the fiscal discipline would be disrupted," and that "the battle against inflation will continue," it is obvious that the government is gradually departing from fiscal discipline and the already worsening inflation will continue to increase in the coming term.

    In response, the Turkish Central Bank (CB) announced that monetary policy would tighten in the case of an easing in fiscal discipline. With these developments, the expectations that the CB will increase interest rates strengthened, after the bank previously announced it would start increasing interest rates prior to the primary surplus cut announcement.

    Here it is, the markets, which remained steady upon news of the closure case, reacted to news of an easing of fiscal discipline and the increasing threat of inflation.

    And another fact that emerged; there is no coordination between the authorities managing the country’s economy, nor is there a relationship established with the institutions that construct the macro economic balances. It is clear that there is no transparency and information is concealed from the public.

     

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